Diagnostics Corp. income statements for 2013 is as follows: Sales...............
ID: 2720279 • Letter: D
Question
Diagnostics Corp. income statements for 2013 is as follows:
Sales....................................................................................... $2,000,000
Cost of goods sold................................................................. 1,400,000
Gross profit............................................................................ 600,000
Selling and administrative expense........................................ 300,000
Operating profit..................................................................... 300,000
Interest expense..................................................................... 50,000
Income before taxes............................................................... 250,000
Taxes (30%)........................................................................... 75,000
Income after taxes................................................................. $ 175,000
a. Compute the profit margin for 2013.
b. Assume in 2014, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes. What are income after taxes and the profit margin for 2014?
Explanation / Answer
Profit margin = Income after taxes /sales
= 119,000 / 2,200,000
= .0541 or 5.41%
sales [ 2000000 (1+ .10)] 2,200,000 less:COGS [1,400,000 (1+.20) ] (1,680,000) Gross profit 520,000 less:Sellng and adm.expense (300,000) operating profit 220000 less:Interest expense (50,000) Income before taxes 170,000 less:Taxes (170,000*.30) (51000) Income after taxes 119,000Related Questions
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